East African oil and gas discoveries to kick-start economic transformation

July 18, 2014

East African oil and gas discoveries are poised to fundamentally transform the economies of the region as the fuel resources usher in new investment in road, rail, power and industrial infrastructure, according to Standard Bank.

Uganda, Kenya, South Sudan, Ethiopia, Tanzania and Mozambique have emerged as one of the most prolific oil and gas exploration regions in the world over the last 10 years, says Mr Simon Ashby-Rudd, the London-based global head of oil and gas at Standard Bank, Africa’s biggest lender. These discoveries will establish the region as a major hydrocarbon province in the decades to come and drive wider economic growth throughout East Africa.

“Over and above the traditional oil and gas regions in Africa, notably West Africa, East Africa has essentially been a forgotten desert in terms of upstream oil and gas exploration over the last 40 years,” said Mr Ashby-Rudd. “This has changed completely over the last decade, oil and gas companies are starting to realise the potential in nations along the East African rift valley and Standard Bank believes this is going to fundamentally transform the region’s economy.”

Oil exploration in East Africa was sparked off by the discovery of between 1.5 and 2 billion barrels of commercially viable oil reserves in northern Uganda in the middle of the last decade. Last year the country announced that total known oil reserves in the country were estimated at about 3.5 billion barrels.

The discovery of oil in Uganda coupled with the fact that exploration licences in East Africa were comparatively cheap due to the fact that the region was not regarded as an oil rich area, ushered in further exploration activity in other countries along the Rift Valley. As a result, further oil discoveries were made in southern Ethiopia and Kenya with additional gas finds in Tanzania and Mozambique.

One of the biggest indicators that the region is likely to experience an oil- and gas-led boom in the next half decade is the fact that several projects in East Africa are likely to come on stream at similar times. Mozambique and Tanzania’s gas and liquefied natural gas projects are expected to come on stream in 2019 with Kenyan and Ethiopia expected to begin commercialisation of their oil deposits over the next six to seven years. Uganda is set to begin oil production by 2018/19, while South Sudan is already producing.

“Oil investment could accelerate the economic growth of several economies in the region,” said Mr Ashby-Rudd. “While the discoveries might be fairly modest in a global context, they’re very significant in a regional economic context.”

Plans are now underway to construct an oil pipeline linking Uganda’s oil fields to the coastal port of Lamu in Kenya. In February this year Uganda signed a memorandum of understanding (MOU) with oil companies operating in the country to facilitate the development of an oil refinery in the country as well as a pipeline that enables crude reserves to be exported.

“A pipeline would really kick-start economic growth in the region as it would usher in additional investments, the necessary infrastructure which in turn will enable further investment in industrial operations,” said Mr Ashby-Rudd.

“Oil thus becomes the catalyst for an economic transformation across the region. An oil pipeline could become the backbone on which an entire infrastructure corridor could be constructed.”

Mr Ashby-Rudd says Uganda’s efforts to link its oil reserves to the coast to facilitate exports could be replicated by other landlocked nations in Africa. This would allow additional infrastructure corridors to be developed as a means of harnessing the economic potential of central and east African nations such as Tanzania and the Democratic Republic of Congo.

Burgeoning economic growth in East Africa is also likely to result in increasing demand for fuel within that region, which imported a collective $10bn of fuel and petroleum products in 2012. Standard Bank expects total demand for petroleum products in East Africa to treble by 2030 with Kenya likely to remain the largest market in the region, which the bank estimates will record compound annual growth rates of between 5% and 7% over the next half decade.